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US CPI Expected To Spike, Will It Impact Fed’s Rate Cut Decision?

Published

1 month ago

August 11, 2024

The US Consumer Price Index (CPI) inflation for July, which is scheduled to be released by the Labor Department on Wednesday, August 14, is expected to spike. This has fueled discussions about whether it will hinder the US Federal Reserve’s rate cut plans at their upcoming meeting. According to market estimates, inflation is expected to rise 0.2%, following a drop of -0.1% in the prior month.

US CPI Inflation Likely To Spike

The global financial market, including the crypto sector, is eagerly waiting for the upcoming US CPI inflation data next week. The data will provide cues on the current inflationary pressures, which in turn could impact the US Federal Reserve’s decision with their policy rate plans.

According to Wall Street estimates, the July inflation is expected to come in at 0.2%, following a drop of 0.1% in the previous month. On a year-over-year (YoY) basis, the inflation is likely to stay at 3%, unchanged from the prior month’s figure.

Simultaneously, the market is anticipating the Core CPI inflation, which excludes the food and energy prices, to come in at 0.2%, up from the 0.1% noted in June. However, on a YoY basis, the Core inflation is anticipated to show a cooling figure of 3.2% in July from 3.3% noted in the preceding month.

The anticipated spike in the monthly US CPI inflation figure has weighed on the market participants’ sentiment. However, a flurry of market experts have shrugged off the concerns, hinting that a smaller acceleration in the figure is not likely to impact the central bank’s decision.

US PPI In Focus

Another key metric, the US PPI inflation figures, is also scheduled for next week. The Producer Price Index (PPI) is another figure after the US CPI that the US Federal Reserve considers while deciding on its policy rate plans.

According to market estimates, the US PPI inflation is expected to remain unchanged at 0.2% in July. However, the Core PPI is expected to come in at 0.2% for the month, after remaining unchanged in the prior month.

Meanwhile, according to the CME FedWatch Tool, there are 51% odds of a 25 bps rate cut by the Federal Reserve at their September meeting. Simultaneously, the bet over a 50 bps rate cut has recently spiked to 49%, after the weaker job data fueled concerns over a potential US recession.

Crypto Market Braces For Impact

The global crypto market has witnessed tumultuous trading lately on the heels of global economic concerns. The Bank of Japan’s move to raise its interest rate has weighed on the market sentiment, triggering a massive selloff in the global stocks and crypto market. However, the BOJ’s consideration of a dovish approach moving forward has allayed some concerns.

In addition, the recent woes over the US economy heading towards a recession have also dampened the market sentiment. Despite that, the market seems to be recovering lately following a massive decline.

For context, BTC price dropped to as low as $49,100 level this week, before noting a rebound to $62,000 mark. In addition, a recent Bitcoin price analysis indicates that the crypto could hit $64,000 soon, following which it could continue its run toward the $70K mark.

Meanwhile, commenting on the upcoming US CPI inflation, Boston Federal Reserve President Susan Collins recently said that the central bank should start trimming the interest rates now. Additionally, she mentioned that the decision will also depend on the last challenge, i.e. the upcoming inflation figures next week.